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Four Challenges (Millennial) Social Entrepreneurs Should Account For When Running Their Businesses If you're about to start a social enterprise, you need to realize that social entrepreneurship comes with its unique challenges.

By Abdullahi Muhammed

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur Middle East, an international franchise of Entrepreneur Media.

Millennials are an entrepreneurial generation. While Gen X'ers and Boomers typically waited until 40 or beyond to begin their entrepreneurship pursuits, this generation often begins even while they are still in college, or at least in their 20s. But the differences do not end there.

A recent study by BNP Paribas Group indicates that millennials are starting twice as many businesses as baby boomers. In fact, over 50% of millennials are first-generation entrepreneurs, compared to only 22% of boomers.

Millennials also have a different approach to social responsibility. While boomers build their businesses first, and then think about contributions to society, millennials want to build that social responsibility into their enterprises up front.

The concept of "social entrepreneurship" is probably best defined by an example. While still in college, Jennifer Eckstrom completed an internship for "Make a Wish" Foundation, an organization that provides children with cancer experiences that they most want. She left that experience knowing that she wanted to start her own business focused on helping kids with cancer. The result was Headbands of Hope, a hugely successful business based on the one-for-one model. For every headband purchased, one is donated to a child with cancer, and $1 goes to help fund research on childhood cancer.

And this typifies the millennial approach to entrepreneurship. They want to impact some segment of society while they make money. But if you're about to start a social enterprise, you need to realize that social entrepreneurship comes with its unique challenges.

1. Raising investment capital is more challenging Venture capitalists want to see the potential for rapid and large growth, and this is not something that social entrepreneurs can promise to deliver. This means going to family and friends or to crowdfunding. They may end up having a large number of smaller investors each of whom they must report to. This will take time and nurturing. Many social entrepreneurs do not raise all of the funds they need from crowdfunding, and they are forced to tap other resources– their own personal assets, small strategic investors, grants, etc. All of this is also time-consuming, and some of the agreements may restrain the flexibility of the entrepreneur.

2. Locating the right manufacturer(s) There is a strong tendency for social entrepreneurs to "bargain hunt" a bit as they look for manufacturers, if their business involves physical products. One of the biggest issues is that manufacturers usually require a minimum order, and coming up with the cash to meet that minimum can be an issue for social enterprises. If a minimum order can be met, the next issue is maintaining an inventory. Blake Mycoskie, founder of Toms Shoes was filling orders in his home. But beyond that, anticipating orders and ensuring that inventory numbers will not be excessive or inadequate often pose challenges for entrepreneurs who do not have a background in inventory management or supply chain.

It is common for new social entrepreneurs to use manufacturers overseas, because of costs and to support the local population. But even this option present challenges. Worker conditions in some countries are not compatible with a social entrepreneur's values. Also, manufacturing in developing nations is often not environmentally friendly. For instance, Eileen Mockus, founder of Coyuchi, a company selling ethically sourced cotton products, has mentioned that the high costs of sourcing 100% organic cotton, paired with the limited domestic availability was one of the major issues for her startup. Supply chain management can also be impacted by any number of things when foreign manufacturers are used– geo-political instability or natural disasters that impact infrastructure such as the recent major flooding in Thailand.

Related: Social Investors, Social Activists And Social Ventures Talk Back: What's Happening In MENA?

3. Low profit margins Millennial social entrepreneurs place higher value on doing good than they do on profits. But they also have to be willing to embrace lower profit margins than their competitors are realizing. While there are certainly exceptions to this rule, most millennial entrepreneurs must accept this fact. One solution that some have found is that if they are donating in-kind goods, they can provide a product of a bit lesser value, maintain their social mission and realize a bit larger profit.

4. Mission drift As social entrepreneurs see their businesses grow and become profitable, two things can happen. They can expand their social missions, such as Toms Shoes did. Beginning with a one-for-one model for their initial product, shoes, they have expanded into eye care, prenatal care, and clean water initiatives. This can happen when businesses become highly profitable, as Toms has. On the other hand, there can also be a trend to focus on profits, in order to satisfy investors and compete with other like businesses. Sometimes, social entrepreneurs can lose sight of their original mission in their drive to become more profitable. It will be important for social entrepreneurs to have strong mission statements and to review these regularly, if they are to stay "on track."

Social entrepreneurs obviously face many of the same challenges that traditional for-profit ones do. At the same time, they truly want to focus on their social missions and to contribute something towards improving the society. For social entrepreneurs who want to be successful in their missions, recognizing and preparing for these challenges is important.

Related: Overcoming The Psychology Of The Social Entrepreneur

Abdullahi Muhammed

Founder and CEO, Oxygenmat

Abdullahi Muhammed is a writer, entrepreneur and the proud founder and CEO of Oxygenmat, a content marketing company. He regularly writes for Forbes, The Huffington Post, and a few other sites.


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